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How discretionary managers can help advisers best serve investors

Guy Myles - 20 August 2010

Discretionary management, as a bespoke investment service tailored to individual needs, appeals to many investors. When advisers are looking at this kind of service for investors, they need to know that it will deliver: in terms of service and performance, and in terms of their own business. This is especially important in light of the forthcoming Retail Distribution Review. Advisers need to know that a service will allow them to meet new regulatory requirements and continue working efficiently. This in turn will help them best serve investors.

However, it isn’t always possible for advisers to find answers to these simple questions. Ironically, the very thing that makes discretionary management attractive, as a highly specialised service, is also what makes it opaque. The level of specialisation has created a lack of transparency across the industry, especially as there’s no legal obligation for managers to declare performance publicly.

This has contributed to an air of exclusivity which isn’t conducive to delivering good service to advisers or investors. It has also made it difficult for advisers to assess and compare services, particularly galling in view of the fact that traditional discretionary wealth managers often charge high fees. What advisers need is a service that brings personalisation to investors but with transparency and lower costs, while also fitting with their own need to work efficiently.

Accessibility is crucial. Even if a service looks as though it can deliver, if the minimum investment amount is too high, some investors won’t be able to afford it. Similarly, transparency around costs is important. Advisers need to find managers who will provide a Total Expense Ratio (TER) and a breakdown of charges so they can see what a service is really going to cost investors.

Transparency around performance is also essential. As performance is not in the public domain, advisers will be looking for managers who will provide information like fund manager track records, performance targets, and how these relate to fees, so they can asses a service properly.

Advisers can also look for services that are flexible enough to easily be integrated with their existing processes. This means they can keep their focus on investors rather than administration. Similarly, advisers will also value clear communication and delineation of roles between themselves and managers, so they can continue working with investors to ensure their needs are met.

Discretionary managers that offer a transparent service, tailored to both advisers and their investors, will not only be serving their customers well but helping to move their entire industry forward.

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